Buyers shun Bear Stearnsâ fire sale

Investors in the worse-hit of two stricken Bear Stearns hedge funds are offering to sell their holdings for as little as 11 cents on the dollar but still finding no buyers, according to unfilled trades on Hedgebay, a secondary market for funds. Vulture funds and others have been quick to bid for holdings in the two funds, but the best bid for Bearâs High-Grade Structured Credit Strategies Enhanced Leveraged Fund, the more geared of the two, is just 5 cents on the dollar. Private sales of stakes are the only way investors can exit the two Bear funds, after the suspension of redemptions in May.

Source : ftalphaville.ft.com

You really need to have brass balls to place an order like this one...

Very accurate as far as what these instruments are and the steps in the creation and marketing which is kind of why I posted it.

One thing I can think of the author missed is that the homeowners don't pay the investors each month. The mortgage payments go directly to a loan servicer who gets a fee. In bad times, it is this loan servicer (think of a property manager) that has to deal with the legal systems in 50 different states to liquidate the collateral. So there's a whole separate level of administration, cost, and delay - often a year or more - before anyone can know what was collected and begin to say just how impaired a tranche is and even then it's a model being used to establish value - not price discovery in a real market. As BSC well recognized - there is no market that will absorb any size chunk of this crap for other than pennies on a dollar. Plus by then the word is out that you're in trouble anyway - imagine what the effect of that knowledge is on the port you're trying to sell!

Another angle is that when a borrower misses payments at a traditional bank, action happens fast to put the loan on non-accrual and establish an offseting increase in reserves. There are regulators that ensure this. No such framework exists in this convoluted world of non-bank lending and investing - which is about 40% to half of mortgage loans these days. Moodys, Fitch, etc. is about all there is and they have to act responsibly if they can and not touch off a panic.

Mauldin has been warning on this mess for a year now. We're only in the early innings as to how it plays out. These big IBs are worried -- at the very least their good names are on the line. Worst case, if they are sitting on this waste still, the exposure exceeds part or all of their cash on balance sheet.